FCA issues warnings to two bankers over interest rates

LONDON Britain's financial watchdog has issued its first warning notices of proposed action against two bankers for their part in alleged manipulation of benchmark interest rates.

The Financial Conduct Authority (FCA) did not name the people, stating only that it gave a warning notice to a submitter of benchmark interest rates for failings over a period of more than two years, and another warning to a manager at a bank for failings over more than three years.

The warnings, issued in November but only published on Monday, relate to the London Interbank Offered Rate or Libor and its continental European counterpart Euribor.

A number of banks have been fined $6 billion (3.6 billion pounds) by European, British and U.S. regulators for manipulating Libor and Euribor, which are used to price around $400 trillion worth of products worldwide, from derivatives to home loans.

The rates are compiled by banks submitting quotes of rates they believe they could borrow money at from another bank.

Banks were found to have rigged them to show the bank was not in financial difficulty during the financial crisis or to make derivatives contracts based on them profitable.

This is the first time the FCA has issued warnings since it was given the power to do so. In the past, the UK financial watchdog would only make its enforcement proceedings public once an individual or company was punished.

The FCA's ability to issue early warnings has raised concerns that a firm or individual would be permanently tarnished even if a case were subsequently dropped.

Rob Moulton, a financial services partner at law firm Ashurst, said the aim was to warn the public early of any potential problems with financial products.

Moulton said the case involving the two bankers was different as it was not directly related to a consumer product.

"It looks to me that the only benefit to saying these warning notices have been issued is to the regulator, that they are being active," Moulton said.

"The use of this power is for the pursuit of the regulatory agenda rather than for public protection," Moulton added.

Regulators in Britain have been criticised by members of parliament for being slow to bring individuals to book for their part in rigging Libor as regulatory investigations have widened to include possible manipulation of currency benchmarks.

The FCA is likely to take many months before it reaches final decisions on the two individuals, who can challenge them in an independent FCA committee and later in court.

The FCA accused the first individual, a manager at a bank, of being personally aware and condoning traders making requests to submitters to manipulate submissions.

The watchdog accused the manager of facilitating others' attempts to manipulate interest rate benchmarks and of being aware of the conflict of interest in certain submitters also trading derivative products referenced to an interest rate benchmark.

It accused the second individual of making interest rate benchmark submissions which took into account requests made by traders to benefit their positions.

The second individual is also accused of colluding with an interdealer broker and with traders at another bank that submitted quotes for compiling interest rate benchmarks.

The second individual also took into account interest rate derivative positions on the bank's trading book for which the individual was responsible when it came to making submissions, the watchdog said.

Separately, Britain's finance ministry said international exchange ICE became the independent administrator for Libor on Monday after the British Bankers' Association was stripped of the role because some of its members have been fined for rigging the benchmark.

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